Advisory Firm Urges Ouster of Murdoch and His Sons

A major investor advisory firm recommended Monday that shareholders of the News Corporation vote against the re-election of a vast majority of the media conglomerate’s board, including Rupert Murdoch and his sons, who control the company.

The firm, Institutional Shareholder Services, wrote in a report that the News Corporation’s incumbent directors, 13 out of 15 board members, failed to prevent the company from stumbling into a morass of corporate troubles.

Chief among these is the phone-hacking scandal in Britain that has led to the arrests of several News Corporation executives, parliamentary hearings and a public apology by Mr. Murdoch.

The scandal flared up in July, when The Guardian newspaper of London reported that reporters for a News Corporation publication, News of the World, had hacked into the voice mails of a 13-year-old murder victim, Milly Dowler. It eventually grew to encompass charges of widespread hacking and illicit bribes paid to British police officers.

The scandal has cost the News Corporation financially. The company eventually closed News of the World after 168 years and scuttled plans to buy control of a major satellite television provider, British Sky Broadcasting, for about $12 billion.

Institutional Shareholder Services wrote that the phone-hacking revelations had exposed “a striking lack of stewardship and failure of independence by a board whose inability to set a strong tone-at-the-top about unethical business practices has now resulted in enormous costs — financial, legal, regulatory, reputational and opportunity — for the shareholders the board ostensibly serves.”

Only two of the News Corporation’s director nominees, Joel I. Klein and the venture capitalist James Breyer, received the advisory firm’s approval, since they have served on the board for only a few months. Mr. Klein, who formerly served as the chancellor of New York City’s public schools, is helping supervise the phone-hacking inquiry.

Firms like Institutional Shareholder Services can hold great sway over public companies’ investors. Many large shareholders often follow proxy advisers’ recommendations.

Institutional Shareholder Services also took issue with the News Corporation’s executive compensation plans, particularly the near-tripling of Mr. Murdoch’s cash bonus for the 2011 fiscal year to $12.5 million.

It noted that Chase Carey, the News Corporation’s deputy chairman and chief operating officer, received a tax benefit when his contract was renewed, although his base salary was cut in half to $4.05 million.

The firm recommended voting against the executive compensation proposal, although it is only advisory.

As expected, the News Corporation took issue with the recommendations, saying it “strongly disagrees” with them.

“The company takes the issues surrounding News of the World seriously and is working hard to resolve them,” Teri Everett, a company spokeswoman, said in a statement. “However, I.S.S.’s disproportionate focus on these issues is misguided and a disservice to our stockholders. Moreover, I.S.S. failed to consider that the company’s compensation practices reflect its robust performance in FY 2011 driven by its broad, diverse group of businesses across the globe.”

Shares in the News Corporation closed up more than 4 percent on Monday, at $16.97.